IMO2020 – Ship Law Loghttps://www.shiplawlog.com
Comment and analysis by Reed Smith lawyers on the latest developments in the shipping industryTue, 15 Jan 2019 15:49:24 +0000en-UShourly1https://wordpress.org/?v=4.9.9https://shiplawlog.reedsmithblogs.com/wp-content/uploads/sites/17/2016/05/cropped-RSTwitterAvatar_512x512-32x32.jpgIMO2020 – Ship Law Loghttps://www.shiplawlog.com
3232Update on BIMCO 2020 Fuel Transition Clause for Time Charter Partieshttps://www.shiplawlog.com/2019/01/09/update-on-bimco-2020-fuel-transition-clause-for-time-charter-parties/
https://www.shiplawlog.com/2019/01/09/update-on-bimco-2020-fuel-transition-clause-for-time-charter-parties/#respondWed, 09 Jan 2019 12:23:01 +0000https://www.shiplawlog.com/?p=1626Continue Reading]]>On 21 December 2018 we commented on the newly released BIMCO clauses intended to address the International Maritime Organization’s revised sulphur content limits with regard to the consumption and carriage of marine fuel (in accordance with Regulation 14 of Annex VI of the International Convention for the Prevention of Pollution from Ships, 1973 as modified by the Protocol of 1978, MARPOL), which enter into force on 1 January and 1 March 2020 respectively.

Since then we have received a number of enquiries relating to how the BIMCO 2020 Fuel Transition Clause for Time Charter Parties addresses the cleaning of fuel tanks ahead of 1 January 2020.

The clause outlines the two-stage process (found at (c)(i) and (ii)) that must be completed before compliant fuel (i.e., fuel that complies with the lower sulphur limits coming into force on 1 January 2020) can be loaded into any fuel tank.

The first stage (found at (c)(i)) requires that any non-compliant fuel (i.e., fuel that does not comply with the lower sulphur limits coming into force on 1 January 2020) remaining onboard after 1 January 2020 be “discharged” by the charterers before 1 March 2020 (or redelivery, if earlier), when the prohibition on carriage of non-compliant fuel comes into force.

The second stage (found at (c)(ii)) requires that the owners must make a (now discharged) recipient fuel tank fit to receive the intended compliant fuel.

While the need for such a provision as is found in (c)(i) is obvious, it is not obvious why this should be a prerequisite to owners having to comply with (c)(ii) or the supply (by charterers) of compliant fuel, bearing in mind that the charterers are (necessarily) also required to have supplied a quantity of compliant fuel ahead of 1 January 2020 by virtue of their obligations under (b)(i) to have “sufficient Compliant Fuel to reach the nearest bunkering port” at such date. Indeed, the inclusion of the first stage as a prerequisite to the supply of compliant fuel is potentially problematic.

It would therefore seem preferable for the relevant sentence to be amended as follows:

“Compliant Fuel shall not be loaded into any of theaVessel’s bunker tanks until the steps described above in subclause s (c)(i) and (c)(ii) hasve been carried out in respect of any such bunker tanks.”

Further, as (c)(i) seems to ignore the need (as per the charterers’ obligation under (b)(i) of the clause) to have at least some fuel tanks fit for the loading of compliant fuel ahead of 1 January 2020, it might be preferable also to amend (c)(i) to read something akin to:

“In order to meet the Requirements, the Charterers shall at their risk, time and costs ensure that: (1) sufficient bunker tanks are free of liquid and pumpable fuel ahead of the Effective Date so as to permit Owners to comply with their obligations under (c)(ii) to make such tanks fit to receive Compliant Fuel and for Charterers to supply sufficient quantity as required to comply with (b)(i); and(2) any Non-Compliant Fuel remaining on board after the Effective Date shall be discharged from the Vessel’s bunker tanks until such tanks are free of liquid and pumpable fuel latest by the Carriage Ban Date or the redelivery of the Vessel, whichever occurs first; and”

The clause is also silent as to the possible need (or at least operational preference) for a supply of compliant fuel or distillate fuel for cleaning or flushing purposes, as part of the second ((c)(ii)) stage. Where the underlying charter is on a ShellTime standard form or other form that has a provision permitting an owner to require (or at least request) the supply of a compliant fuel or distillate fuel that the charterer would not otherwise be required to supply, this should not be an obstacle to the owner’s preference (albeit the price differential would fall to such owners). However, an equivalent provision is rare under a non-tanker charter and the cooperation provision under the BIMCO clause is not broad enough to assist. Parties to charterparties without such rights may wish to consider whether the same should be included.

]]>https://www.shiplawlog.com/2018/11/22/the-2020-global-sulphur-cap-whitepaper/feed/0rclark@reedsmith.comIMO 2020 and Liberia’s stancehttps://www.shiplawlog.com/2018/10/03/imo-2020-and-liberias-stance/
https://www.shiplawlog.com/2018/10/03/imo-2020-and-liberias-stance/#respondWed, 03 Oct 2018 17:39:47 +0000https://www.shiplawlog.com/?p=1571Continue Reading]]>Last week, the Liberian flag state called for the IMO to issue a resolution or circular requiring early reporting of low-sulphur fuel availability by member states. From the flag state’s point of view, littoral states should be doing more to assist shipowners and, by extension, time charterers in planning for compliance with the 1 January 2020 deadline for the global reduction of sulphur content (down to 0.5 per cent m/m) in marine fuels.

The timing coincides with the widespread understanding that unless an owner has already committed to fitting approved abatement technology (in accordance with the carve-out at Reg. 4 of Annex VI to MARPOL), it is almost certainly now too late to complete the installation and approval process before the 1 January 2020 deadline. In other words, for such owners, there is no avoiding a compliant fuel strategy come that deadline.

The availability of compliant fuel is ultimately a balancing act of the commercial interests of the owners and time charterers of ships on the one hand and the refineries on the other.

When considering whether to consume Reg.14 compliant low(er) sulphur content fuel oil(s) or embrace the Reg. 4 carve-out, so as to continue to consume the (as of 1 January 2020) non-compliant fuel oil(s), owners or (if applicable) their long-term charterers must assess more than merely the questionable availability of compliant fuel oils in the short term. They must also take into account a number of other short- and long-term uncertainties, including: (i) the long-term price differential between compliant and non-compliant fuel oils, after the inevitable initial spike; (ii) the initial lack of ISO standards for, and questions over (blended) stability of, compliant fuel oils; (iii) the high short-term capital cost (capex) of fitting abatement technology and the additional operational expenditure (opex) of relying upon the same; (iv) the questionable long-term acceptability of any such method of equivalence (where already, the acceptability of open-loop scrubbers is being called into question); and (v) in the context of long-term charters, the allocation of time, risk and expense as between owners and their charterers for the capex and opex.

On the other hand, for the refiners to make a business case for the necessary improvements to their assets, they must also consider not only the underlying price of crude but also the future demand for compliant and non-compliant fuels. This is largely dependent on the conclusions that the shipowners (and long-term charterers) reach as to which fuel strategy to adopt. However, there is also the question of how many ships will be built (and to a lesser extent retro-fitted) to permit the consumption of alternative (IGF Code) fuels, such as LNG.

If the capex of fitting abatement technology to ships seems considerable to a shipowner, so too does the capex of upgrading or repurposing refineries so as to rebalance their output towards compliant fuel as opposed to non-compliant fuel production.

The most up-to-date information suggests that less than 10 per cent of the global fleet will have fitted abatement technology or be in the process of doing so by 1 January 2020. So, as of, if not before, such date (as an earlier change-over is needed to flush systems), compliant fuel oil will have become the default marine fuel for shipping. Leaving open the question as to whether enough vessels will have been converted globally by 1 January 2020 for the refiners to meet the initial demand, the available information is to an extent conflicting. Thus, it would be prudent to assume that in the first few months not only will compliant fuel oil prices be considerably higher, but obtaining such fuel, or an acceptable (more expensive) distillate equivalent, will be more challenging and perhaps, during such period, impossible in certain locations. Although the transitional period will present challenges, these were anticipated and legislated for by the Annex VI (at Reg. 18) and the information requested by the Liberian flag state could provide easily accessible evidence, mitigating some of these challenges.

In addition, as touched upon above, before ISO standards are established in respect of blended compliant fuel oils, the offerings in different geographical locations may be of varying stability, leading to an increased risk to the operation and reliability of ships’ machinery.

In a long-term time charter context, the above issues also create potentially difficult considerations for both the owners and charterers.

The fundamental issue is the allocation of responsibility for the time, risk and expense of any modifications – for example, the fitting of scrubbers or who has the obligation for paying for the compliant fuel. Resolution of this issue will depend upon the characterising of the modification as either one that the owner must make so as to continue to consume non-compliant fuel (if that is what the owner is obliged to do) or one that the charterer may request, in order to continue supplying non-compliant fuel. The difference would most likely link to whether the IMO’s revisions were anticipated or known at the time of entering into the charter. In other words, the older the charter, the more likely that the issue will be contentious, as it is unlikely to have been clearly addressed.

There are also a number of other important follow-on issues for any time charter. For instance, some standard forms oblige charterers to redeliver the vessel with sufficient quantity of fuel oil for the vessel to reach the “nearest main bunkering port” (or similar wording). Arguably, the question of whether a port meets the definition might have to be read with compliant fuel availability in mind. Similarly, will the owners be obliged to buy back any unused and remaining non-compliant fuel? Further, until the IMO clarifies when ships can no longer carry (as opposed to consume) non-compliant fuel, will a charterer be required to remove the same and replace it with compliant fuel, to meet its redelivery obligations?

To a lesser extent, voyage charters are also likely to be impacted. While Reg. 18 (as mentioned above) provides that owners need not deviate from the intended route or unduly delay the performance to achieve compliance, the exception is dependent on the owner demonstrating that it took “reasonable steps” to comply. The Paris MOU guidelines on Reg. 18 state that such steps include planning to procure compliant fuel, both prior to commencing the voyage and en route. Questions could arise between owners and charterers as to whether there is a minimum deviation that could be justified in order to achieve compliance. Owners may wish to discuss this point further with their P&I insurers to ensure that such deviation would not prejudice their cover. Further, for future voyage charter fixtures, owners may wish to amend their contracts to offer more flexibility and address the costs of making any deviation.

To conclude, the Liberian flag state’s proposal for early submissions of information as to the availability of compliant fuel in different ports is a positive step that will aid owners, and time charterers, in planning their fuel strategy and allow for early discussions to take place between owners, charterers, bunker suppliers and refiners. If adopted, this could only assist a smoother operational transition and perhaps translate into a reduced number of disputes.

]]>https://www.shiplawlog.com/2018/10/03/imo-2020-and-liberias-stance/feed/0mdodds@reedsmith.com, ASwierczewski@reedsmith.comBig data analytics and autonomous vessels – when will legislation catch up?https://www.shiplawlog.com/2018/09/03/big-data-analytics-and-autonomous-vessels-when-will-legislation-catch-up/
https://www.shiplawlog.com/2018/09/03/big-data-analytics-and-autonomous-vessels-when-will-legislation-catch-up/#respondMon, 03 Sep 2018 10:46:28 +0000https://www.shiplawlog.com/?p=1562Continue Reading]]>In a survey conducted by Reed Smith in the first half of 2018, industry participants predicted that big data analytics will be one of the most significant drivers of change in the shipping industry over the next five years. In addition, for the same five-year period, the survey revealed that the shipping industry considers the development of automated processes and functions on board vessels to be the biggest driver of efficiency in shipping.

The collection, analysis and management of huge volumes of unstructured data (i.e., big data), such as data on voyage performance, ship structure, machinery, fuel consumption, traffic, cargo and the weather, are expected to provide valuable insights into the operation of ships, and uncover hidden patterns as well as market trends. The analysis of big data will also allow the prediction of likely outcomes in certain voyages. In addition, it is likely to reduce costs, as the industry will be able to identify more efficient ways of doing business; it will allow decisions to be made more quickly; and it will make shipping safer by reducing risks.

Big analytics will also encourage the development of automated procedures and advanced technologies such as Maritime Autonomous Surface Ships (MASS). The Yara Birkeland, scheduled to enter into operation in Norway by 2020, will be the first fully autonomous commercial vessel, while MASS that are able to trade internationally are expected to be introduced by 2035. The pressing question at the moment, and one of the greatest challenges in the industry as highlighted by our survey, is whether the required international legal framework will be in place quickly enough to allow the rapid adoption and widespread operation of advanced technologies such as MASS for international trade as opposed to cabotage.

Existing international conventions (such as those on Safety of Life at Sea (SOLAS), on Prevention of Pollution from Ships, and on Standards of Training, Certification and Watchkeeping for Seafarers) and regulations (such as the International Regulations for Preventing Collisions at Sea) were not drafted with unmanned ships and advanced technologies in mind. The IMO, with the assistance of the Comité Maritime International, is taking steps to identify issues arising from the existing legal regime. The IMO’s regulatory scoping exercise to identify issues arising from the conventions, is scheduled to be completed by 2020. Following the completion of the exercise, a decision will likely need to be made on whether the existing conventions or regulations need to be clarified or amended, or whether new conventions or regulations that deal with MASS and advanced technologies need to be brought into force.

Whereas clarifying and amending existing conventions can be done relatively quickly, enforcing new conventions is a time-consuming procedure that can take years or even decades to be completed. This is mainly due to the specific steps that need to be fulfilled by countries, such as receiving parliamentary approval before proceeding with ratification. Additional delays are likely to arise where countries with conflicting interests (for example, a high number of seafarers) might be reluctant to ratify conventions that allow the international operation of MASS and the adoption of technological advances.

Big data analytics and the operation of MASS are expected to make shipping safer, more efficient and more environmentally friendly, and our survey shows that the industry is willing to consider adopting innovative technologies. However, these technologies may initially operate on a small scale until the international legislation is in place to allow their widespread adoption.